Definition: HUF, an acronym for Hindu Undivided Family, is a joint Hindu family. It comprises persons who are direct descendants of a common ancestor. It includes the wives and children of male descendants. The aim of creating HUF is to make families stay together, and control of the business stays within the family.
‘Undivided Family‘ means any family whose property is not divided. It works on the eldest first concept.
It is composed of ‘Karta‘, the eldest member, commonly known as the head of the family. He operates the business of HUF. The descendants of the male members of the family are known as Coparceners, while the wife of Karta and sons’ wives are called Members. Coparcenar is the one who acquires the right to ancestral property by inheritance. Only a coparcener can demand the division of HUF.
- While Hindu Law does not regulate Jain, Sikh and Buddhist families, they can also form a HUF.
- There can be a HUF consisting of female members only.
- An adopted child of a coparcener can become a member of HUF.
- After the formation of HUF, the bank account must be created in the name of the HUF. It has a separate PAN card.
- The members of the HUF must sign a declaration authorizing Karta to run HUF.
- Each family member can deposit a part of their income in the corpus.
- Those who do not belong to one family cannot form HUF.
Haldirams, Reliance Industries and Tata Group are two common examples of a HUF businesses.
Who is Karta?
Karta is the head of the family, a senior-most living male member of the joint Hindu family. A Karta has several distinctive powers, which include deciding how the family should operate and maintain. He enjoys the power to decide to dispose of the property if the situation demands.
In the event of the death of Karta, the second senior person in the family or the eldest child of Karta in the family takes his place. If, due to any reason, the eldest child or the second most senior person doesn’t want to become Karta, then the next eldest member or the second child can become Karta.
Who is a Coparcenar?
The ones who are part of ancestral property since birth are coparceners. Hence, they have the right to demand the division of ancestral property. A Coparcenar is a descendant of the family. He/She is someone who inherits an estate as a co-heir.
Initially, only the male members within 4 degrees in lineal descendant from a single male ancestor are considered coparceners. But, after the amendment made by the Hindu Succession (Amendment) Act of 2005 daughters can also be a coparcener of Hindu Undivided Family.
Any woman married to a coparcener automatically becomes a member of HUF. Women can have rights in two HUF, i.e. as a coparcener in the father’s HUF and as a member in the husband’s family HUF. However, the daughter’s husband has no rights in their wife’s parents’ HUF.
Who are members of HUF?
It covers the daughter-in-law, son-in-law and daughter’s children. They do not have coparcenary rights. So they do not have a direct claim over HUF property, but they get these rights through coparceners. Further, they are entitled to maintenance from HUF.
What is a HUF account?
Those who create a HUF open a separate bank account. This account showcases the revenue and expenses of the HUF.
Characteristics of HUF
- A member of the family can carry on any other business separately. The income earned by that family member can be regarded as his own income and not the income of the family, even when he borrows the funds from the joint family fund.
- The salary which Karta earns as the director of HUF is regarded as his income.
- The salary income of the member will not be assessed as the income of HUF.
- One can form Hindu Undivided Family only after marriage, i.e., an agreement cannot create it. It comes into existence through the status or operation of Hindu law.
- It is a jointly-owned business and is regulated by Hindu Succession Act 1956.
- The liability of the Karta is unlimited, whereas the liability of the coparceners is limited to the extent of their share of interest in the coparcenary interest.
- A daughter can remain a coparcener in her father’s HUF even after her marriage, irrespective of the fact that she is a member in her husband’s family HUF.
- Female-only HUF is possible.
- If a person changes his religion to Islam or Christianity, they cease to become a member of HUF.
- HUF is recognized in all Indian states except in the state of Kerala.
- Membership in a Hindu Undivided Family is acquired by virtue of birth.
Taxability of HUF
Do you know that a HUF is taxed separately from its members? It has its own PAN and files ITR, which is independent of its members. Also, it can claim deductions and exemptions that are allowed per tax laws.
For Instance: You, along with your brother and spouse, decide to form a HUF, and then all three of you and the HUF are eligible for claiming deductions. So, you can save taxes by forming a HUF and putting together the assets for its formation.
A word from Business Jargons
Further, the assets are inherited from ancestral property, gifts or property bought by selling ancestral property, will, etc.